C:01.2013.SEC.BANKGUARANTEEWHITEPAPER.
Winter
13
SWIFT
FORMAT MT 760: BANK GUARANTEES
Confidential and Exclusive
PROCEDURES AND PROTOCOL
By:
Alexander J. Alfano. Attorney at Law
Legal Digital Library
http:www.financiallegalgroup.com
Version: 2.0 2 Jan 2013
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January 2013
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BANK GUARANTEES: PROCEDURES AND PROTOCOL
MT 760 – BANK GUARANTEE
The MT-760 is a type of SWIFT message that is used in commodities trading because it functions as a
Bank Guarantee, although it carries with it a much higher level of risk for the issuer (usually the buyer),
and a reduced level of risk for the recipient (the seller).
Essentially, a MT-760 is a SWIFT message which guarantees that a bank will make payment in favor of a
client of another bank. When a MT-760 is issued, the issuing bank puts a hold on its client's funds,
thereby ensuring that the funds are in place to make payment to the recipient of the MT-760.
SWIFT Codes
There are SWIFT codes which correspond to various types of procedures. 'MT' is just "Message Tag" and
is then followed by a Message Class (here "7") and a two digit procedure number. Class 7 is "Letters of
Credit and Guarantees", and procedure 60 is "blocked funds".
What Happens When My Bank Issues An MT-760?
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So, the seller can now use this to pay subcontractors and get equipment ready for delivery. It is therefore
imperative that an agreement exists between the parties that governs the use of the blocked funds, so that
the client is [not] liable to pay for goods or services [that were] never received.
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When an MT-760 is issued, the issuing bank puts a hold on the client's funds, blocking the client from
using them. This will allow the beneficiary's bank to allow this to establish a line of credit, backed by the
funds on the client's account.
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Is A MT-760 Negotiable?
No. Once a MT-760 has been issued, it is not negotiable [to any third party beneficiaries].
How Do I Get A MT-760?
All banks on the international Swift network can issue MT760. However financial brokers, lawyers,
equity fund manager, investment funds and private bankers cannot issue Swift procedures. The bank may
demand that you use a special account for this procedure.
Analysis:
1) Nature of SWIFT: A SWIFT MT 760 is a bank-responsible guarantee issued by the sender bank,
upon instructions of its account holder, in favour of a particular transaction or counter-party.
Since banks never put their own money at risk, the clients funds are "blocked" by the bank, and
held by the bank as security (collateral) for the issuance of the SWIFT. The SWIFT MT 760,
therefore, is more than just an inter-bank message - it is a full-blown cash-backed negotiable
instrument.
2) Text: The SWIFT MT 760 comes in a variety of shapes and sizes, depending on the precise
text employed by the sending bank in the field specifications, particularly Field 77C. When
offered a SWIFT MT 760 procedure by a Trade Group, clients should request the complete text
of the SWIFT MT 760 message so there can be no "surprises" later on. And don't settle for a
watered-down "broker" version of the text; the precise language of the field specifications is of
critical
importance.
3) Availability U.S. Banks (and some banks in the Far East) have shown a general unwillingness
to issue a SWIFT MT 760. Before you can commit to any proposed transaction, therefore, you
will need to first confirm that your bank will take instructions to issue the SWIFT message. And
if your bank won't cooperate, you may wish to move your funds out of the bank to a more
accommodating financial institution.
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4) Cost Keep in mind that the bank charges for issuance of a SWIFT MT 760 are not
insubstantial, it's normally 0.05 % of the amount.
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The MT 760 is a swift message used to block funds in favor of someone other than the
owner, collateralizing the asset via this message, while allowing for loans and liens against
it.
First and foremost, the fees for blocking a large amount of funds via MT 760 can be more
than you would expect. In most cases, your bank will charge 1-2% of the value being blocked
for this service. For example, on a 100M bank instrument this can be 1-2M that the owner must
come out of their pocket with, unless they have a special relationship with their bank. You may
say to yourself, “Wow, that is a lot to spend on fees for something I’m not sure will work”! Well,
even more importantly, let’s take a look at the risks if you did move forward.
If you complete the MT 760 and pay the fees, you should observe everything very closely from
that point on. Once the MT 760 has hit the account of the trader, the line of credit should
become available within 72 hours. At that time, the trader should be able to make their first bank
instrument purchase, and give you a DEFINITE TIMELINE for your first profit
disbursement. You may say, “Why do I need to watch this process so closely?” Well, here is the
part that most brokers don’t tell their clients…
When blocked in someone’s favor, the MT 760 collateralizes assets in the form of a swift
guarantee, and by doing so, allows the beneficiary to draw credit against it. This means, if
the loan to the “trader” was defaulted on, the bank would seize the collateral and you would be
out of your money! Though this scenario is possible, I would consider it rare for two
reasons… In today’s world, no bank will loan Millions of dollars to someone they haven’t
vetted, no matter what collateral is on hand. Second, the MT 760 is quite rare, and this usually
draws attention to the beneficiary of the swift.
In summary, the MT 760 can be safe, or it can blow up in your face. As always, the key is
having a real trader and most importantly, getting your payments as scheduled. If the trader
makes a statement about yields and a time line, they must ALWAYS keep in line with their
promises. Over the THOUSANDS of transactions we have been involved in, the only ones that
have
closed
have
been
smooth
from
the
start,
with
NO
hiccups.
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Remember, both RISK and FEES are a part of blocking funds via MT 760.
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Conditions:
The Bank Instrument must be in client complete possession.
The Bank Instrument must be cash backed.
The Bank Instrument must have swift capacity.
The Bank Instrument must be blocked and swift for the trading period.
The Bank Instrument must be swift on the verbiage which is agreed in readiness to
proceeds.
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The Bank Instrument hard copy must be send via bank bonded courier upon
request.
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